08/12/2011 – Plaintiff’s Memorandum of Law in Opposition to Motion to Dismiss filed in the Spansion, Inc. Adversary Proceedings by Barclays Capital Inc. before Chief, U.S. Bankruptcy Judge Kevin J. Carey in the District of Delaware filed by Eckert Seamans Cherin & Mellott LLC (Wilmington, DE) attorney Ronald S. Gellert; ASK Financial LLP (St. Paul, MN) attorneys Joseph L. Steinfeld, Jr. and Karen M. Scheibe .

Pirinate Consulting Group, LLC, Claims Agent (the “Plaintiff”) for the Chapter 11 Estates of Spansion, Inc., et al. (the “Debtors”), filed this opposition to the Motion to Dismiss (the “Motion to Dismiss”) filed by defendant, Barclays Capital Inc. (the “Defendant”). Plaintiff is in the awkward position of requesting leave to amend its complaint to preserve its fraudulent conveyance count by alleging that the $1.5 million “preferential payment” to the Defendant was actually a retainer that was not fully earned. With no effort made to support a contention that the original complaint adequately alleged a constructive fraudulent transfer, practically the entire brief is premised on a proposed amended complaint. The real question presented by this brief is whether Chief, U.S. Bankruptcy Judge Kevin J. Carey will grant leave to amend. While the Plaintiff is unapologetic as to the deficiencies in the original complaint, the Plaintiff forcefully argues that it has a good fraudulent conveyance case … if the amended complaint is allowed. Registered users click here to see a copy of this brief.

Defendant seeks dismissal of three counts of Plaintiff’s five count complaint: constructive fraudulent transfer pursuant to 11 U.S.C. § 548(a)(1)(B), authorized post-petition transfer under 11 U.S.C. § 549, and disallowance of claims pursuant to 11 U.S.C. § 502(d) and (j). Plaintiff immediately concedes two of these three counts:

Plaintiff concedes that dismissal of Count III (avoidance of the Transfer from Defendant as an unauthorized post-petition transfer pursuant to 11 U.S.C. § 549) and Count V (disallowance of any claim held by Defendant against the Debtors’ chapter 11 estates or Plaintiff until the Transfer is returned pursuant to 11 U.S.C. § 502(d) and (j) of the Complaint is appropriate. Plaintiff has been able to independently verify that the Transfer cleared Spansion LLC’s bank account before the Debtors’ bankruptcy petition filing date. Plaintiff has also been able to confirm that Defendant did not file a claim and the Debtors did not schedule a claim for Defendant in the Debtors’ bankruptcy case. Thus, Plaintiff will withdraw Counts III and V from this Adversary Proceeding. Accordingly, Plaintiff will not further address the contentions to the same contained in Defendant’s Motion to Dismiss.

In a shrewd tactical maneuver, Defendant did not move to dismiss the Section 547 bankruptcy preference count. The Plaintiff is compelled to acknowledge and justify the inconsistency between its Section 547 preferential transfer claim and its Section 548 claim for constructive fraudulent conveyance:

Plaintiff acknowledges that its claims under § 547 and § 548 of the Bankruptcy Code are, by their very nature, mutually exclusive and that eventually Plaintiff will have to decide whether to proceed under a preferential transfer or constructive fraud theory. However, the Federal Rules of Bankruptcy Procedure specifically permit alternative pleadings which, in the end, may be mutually exclusive. At this preliminary stage, then, the only question is whether, Plaintiff has adequately pled its constructive fraud claim in the alternative. Thus, in order to maintain a claim under 11 U.S.C. § 548, Plaintiff need only allege sufficient facts that the Transfer was for less than reasonably equivalent value, and that the Debtors were insolvent when the Transfer was made.

Plaintiff defense of the Section 548 count of its original complaint is limited to one sentence: “Although Plaintiff believes that the initial complaint filed in the above-captioned adversary proceeding (the “Adversary Proceeding”) stated a plausible alternative claim for relief under 11 U.S.C. § 548, Plaintiff is filing concurrently herewith a Motion for Leave to Amend Complaint to Include Additional Factual Information Supporting Count II of the Complaint and to Assert a Claim for Turnover of the Property Under Bankruptcy Code Section 542 (the “Motion to Amend”) to address these alleged deficiencies, which consequently compels denial of Defendant’s Motion to Dismiss.”

Since no meaningful effort is made to defend the original complaint, the brief is of no value to any Iqbal/Twombly analysis. However, Plaintiff’s intent is clear – show that Plaintiff has a good fraudulent conveyance case and may be Judge Carey will allow it to go forward. The brief is noteworthy for this discussion of Plaintiff’s challenge to the $1.5 million retainer payment to Defendant on constructive fraudulent conveyance grounds. That discussion follows (footnotes omitted):

A. The Amended Complaint Plausibly Alleges That Spansion LLC and Spansion Inc. Did Not Receive Reasonably Equivalent Value in Exchange for the Transfer.

With respect to the first element of Plaintiff’s fraudulent transfer claim, Plaintiff has sufficiently alleged in the Amended Complaint that Spansion LLC and Spansion Inc. did not receive reasonably equivalent value from Defendant. Courts look to the “totality of circumstances” to determine if a transfer is for equivalent value, including the following factors: “(i) the ‘fair market value’ of the benefit received as a result of the transfer, (ii) ‘the existence of an arms-length relationship between the debtor and the transferee, and (iii) the transferee’s good faith.'” In re Aphton, 423 B.R. 76, 89 (Bankr.D.De1.2010) (quoting In re Fedders N. Am., Inc., 405 B.R. 527, 547 (Bankr.D.De1.2009); Cf. In re Am. Bus. Fin. Servs., Inc., 361 B.R. 747, 760 (Bankr.D.De1.2007) (“The Third Circuit utilizes a totality of circumstances test in determining whether reasonably equivalent value was given, and that factual inquiry is not suitable for determination on a motion to dismiss.”). Considering these factors, Plaintiff states in its Amended Complaint that Spansion LLC and Spansion Inc. received less than reasonably equivalent value for the Transfer.

Specifically, Plaintiff alleges in its Amended Complaint that pursuant to the Engagement Agreement, Defendant was to provide financial advisory services for a period of six months in exchange for the Transfer in the amount of $1,500,000.00. However, Defendant only provided services for a period of forty-six days. Amended Complaint ¶34 (hereinafter “Am. Compl.”). Plaintiff alleges that Defendant did not provide meaningful financial advisory services of reasonably equivalent value in the amount of $1,500,000.00 to Spansion LLC or Spansion Inc. in exchange for the Transfer in the forty-six days during which Defendant was engaged prior to the Debtors’ petition date. Am. Compl. ¶35. In fact, as alleged in the Amended Complaint, Defendant has not provided a detailed invoicing or accounting describing the financial advisory services Defendant purportedly rendered to either Spansion LLC or Spansion Inc during the forty-six days of its engagement. Am. Compl. ¶36.

Further, Plaintiff specifically alleges in its Amended Complaint that Spansion LLC, the operating subsidiary Debtor entity from whose bank account the Transfer was drawn, received only nominal value, at best, from Defendant in exchange for the Transfer. Am. Compl. ¶37. Plaintiff alleges that Defendant did not provide any financial advisory services to Spansion LLC because Spansion Inc. rather than Spansion LLC entered into the Engagement Agreement pursuant to which Defendant was engaged to provide said services to only Spansion Inc. Am. Compl. ¶38. Plaintiff alleges that Spansion LLC made the Transfer even though Defendant provided the consideration for said Transfer to Spansion Inc. Am. Compl. ¶39. Thus, the value to Spansion LLC is presumptively nominal because there is no evidence of any specific benefit provided to Spansion LLC. ⁶ In re Royal Crown Bottlers, Inc., 23 B.R. 28, 30 (Bankr.N.D.Ala.1982) (Unlike in circumstances when a parent makes a transfer on behalf of a subsidiary, when a subsidiary makes a transfer for which the consideration is provided to its parent, as is the situation as issue in this Adversary Proceeding, the benefit to the subsidiary is presumed to be nominal, “in the absence of proof of a specific benefit to it.”); see also Telefest,  Inc. v. VU-TV, Inc., 591 F. Supp. 1368, 1378 (D. N.J. 1984).

Therefore, these allegations are more than sufficient to allow the Court to infer that the Transfer was constructively fraudulent.